Petroleum: The Market’s Greatest Illusion

How much value should one put on a gallon of crude oil?  Who knows…

Well, there is this interesting idea:

Buckminster Fuller wrote in his book, Critical Path: “the brilliant Denver, Colorado oil geologist, Francois de Chardenedes … regarding the amount of energy employed as heat and pressure, for the length of time initially that it took nature to photosynthetically process Sun radiation into the myriad of hydrocarbon molecules that comprise all the vegetation and algae … a large percentage of which Sun-energy-nurtured-and-multiplied molecules are ultimately processed into petroleum.

The script of de Chardenedes’ “Scenario of Petroleum Production” makes it clear that, with all the cosmic energy processing (as rain, wind and gravitational pressure) and processing time (paid for at the rates you and I pay for household electricity), it costs nature well over a million dollars to produce each gallon of petroleum.”

This means that if humanity, instead of nature, wanted to “produce” (i.e. create) an energy source with the qualities of oil, it would also cost us a helluva lot of money!  Remember, we extract oil, we do not produce it.  Also, remember why we use oil despite its well publicized bad aspects:  (1) it is energy dense (2) it is easily transportable (3) it is easy to store (4) we can make many different products out of it, other than fuel, and (5) it is already there, we don’t need to grow it like biofuels.  It is an outright fantasy that oil companies (financed by debt) can extract oil for just a few tens of dollars a barrel and say that they are “producing” a product with all of these qualities.  Yet our culture accepts this fantastic illusion quite readily.

Now, Buckminster Fuller had a unique if not controversial way of looking at things, but this idea seems plausible, if it isn’t, it’s still interesting.  I can’t find Francois de Chardenedes’ work online but we can perform a quick back of the envelope calculation to see if his findings were reasonable.  Let’s say it takes 1 kWh of energy per day to create the algae/plankton, bury a few pounds of it, and heat it up to generate a gallon of petroleum. These biologic materials need to be buried and “cooked” for say, a period of 100,000 years (petroleum is generated over geologic timescales, so this estimate is very generous).  At $0.10 per kWh, the production cost would come to $3,650,000 per gallon.  A barrel (42 gallons) would cost $153,300,000 to produce.  Hmmm… YIKES!

1 kWh is not a lot of energy.  It is 0.4% of the average American’s daily energy use (including residential, commercial, industrial and government energy use).  Though at a rate of 1 kWh/d it does add up to a lot of energy over geologic timescales.  Therefore, let’s say we way overestimated the energy needed to make a gallon of petroleum, and it only takes 1 kWh per year over 100,000 years to produce it (0.0027 kWh/d, a total of 100,000 kWh).  It would still cost $10,000 to produce a gallon of petroleum.  A barrel would cost $420,000 to produce.

It seems the drive I took the other day that consumed 1 gallon of gas really should have cost me at least $10,000+ or even $3 million, not $2.90.  Holy crap! It’s a trap!  That’s quite a distorted economic incentive. The fact that people in OECD countries reduce their demand for oil when the price of a gallon of oil reaches $2.38 ($100/bbl) should provide some food for thought.

Fossil fuel subsidies? I don’t know… It seems we are subsidized by fossil fuels.  Which is way worse; as we are entrenched by our society’s fossil fuel inertia.  To give you an idea of this, to de-carbonize 12 TW of fossil fuel power out of 15 TW of total world power, would require the world to build a 1 GW nuclear power plant or equivalent renewable power plant every 3 days for the next 99 years.  12,000 nuclear power plants.  The world currently has ~440 nuclear power plants and many are old.  This sounds expensive, and this is assuming that world power use does not increase over the next 99 years.  However, the simple cost analysis in this post showed that petroleum is way more “expensive” than we think and suggests we should do whatever it takes to move to alternatives ASAP, without even stopping to argue about climate change.

Anyway, I think all of this endless arguing about the oil price slide and whether “Peak Oil” is debunked is a waste of time.  I am guilty of this myself.  By reading more, I have come to realize, as have many others, that peak oil is just a symptom of a larger and more fundamental problem with our culture.  I can’t pinpoint it right now but these questions may shed some light on it:

How much energy or resources does one require in order to live a “good” life? To be happy?

What is the real cost of non-renewable energy or other non-renewable resources? How do depletion problems over time periods of decades factor in?  What about climate change or ecosystem destruction?

How much is the real cost distorted by a culture bent on endless consumption of non-renewable resources to increase its status and wealth?  What is wealth?

Will technology save us from depletion problems, climate change, and ecosystem destruction? How can it if all of the technology that has ever been invented just got us to the point where we are now, asking these questions?

How do we enable the developing world to develop western consumption-heavy lifestyles on only renewable energy and renewable materials? We are having some substantial difficulty doing just that ourselves for any number of technological, economic, political, or social reasons.  On that note, what does sustainability really mean?

I heavily advise taking your savings from this period of low oil prices to invest in energy conservation, solar panels, a hybrid vehicle, a good commuting bike, or something along these terms.  Do not be fooled by the petroplex illusion.  I was for a while, but it is possible to wake up from “the Matrix” (and it’s fun!).

That fact that there are many people in America who still cannot afford these “green” technologies (including a nice bike!) even with our GDP of $17 trillion, is troubling.  This fact is obviously evidence that the free market is distorted for any number of reasons (duh!), but, in my opinion, it is mostly distorted by our individual limits of understanding complex systems (such as our own economy).  It’s possible that our Geodestinies, like Peak Oil, are still far into the future, but we are getting closer to them with every commodity super-cycle that comes to pass.  My advice for the future:  tread lightly.

Happy Holidays!

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